America Faces Catastrophic Levels Of Inequality

Robert
Reich is one of the nation’s leading experts on work
and the economy, is Chancellor’s Professor of Public
Policy at the Goldman School of Public Policy at the
University of California at Berkeley. He has served in
three national administrations, most recently as
secretary of labor under President Bill Clinton.

Recent Posts

As President
Obama said in his inaugural address last week, America “cannot
succeed when a shrinking few do very well and a growing many
barely make it.”

Yet that continues to be the direction we’re heading in.

A newly-released analysis by the Economic Policy Institute
shows that the super-rich have done well in the economic recovery
while almost everyone else has done badly. The top 1 percent of
earners’ real wages grew 8.2 percent from 2009 to 2011, yet the
real annual wages of Americans in the bottom 90 percent have
continued to decline in the recovery, eroding by 1.2 percent
between 2009 and 2011.

In other words, we’re back to the widening inequality we had
before the debt bubble burst in 2008 and the economy
crashed.

But the President is exactly right. Not even the very wealthy can
continue to succeed without a broader-based prosperity. That’s
because 70 percent of economic activity in America is consumer
spending. If the bottom 90 percent of Americans are becoming
poorer, they’re less able to spend. Without their spending, the
economy can’t get out of first gear.

Almost a quarter of all jobs in America now pay wages below the
poverty line for a family of four. The Bureau of Labor Statistics
estimates 7 out of 10 growth occupations over the next decade
will be low-wage — like serving customers at big-box retailers
and fast-food chains.

At this rate, who’s going to buy all the goods and services
America is capable of producing? We can’t return to the kind of
debt-financed consumption that caused the bubble in the first
place.

Get it? It’s not a zero-sum game. Wealthy Americans would do
better with smaller shares of a rapidly-growing economy than with
the large shares they now possess of an economy that’s barely
moving.

If they were rational, the wealthy would support public
investments in education and job-training, a world-class
infrastructure (transportation, water and sewage, energy,
internet), and basic research – all of which would make the
American workforce more productive.

If they were rational they’d even support labor unions – which
have proven the best means of giving working people a fair share
in the nation’s prosperity.

But labor unions are almost extinct.

The decline of labor unions in America tracks exactly the decline
in the bottom 90 percent’s share of total earnings, and shrinkage
of the middle class.

In the 1950s, when the U.S. economy was growing faster than 3
percent a year, more than a third of all working people belonged
to a union. That gave them enough bargaining clout to get wages
that allowed them to buy what the economy was capable of
producing.

Since the late 1970s, unions have eroded – as has the purchasing
power of most Americans, and not coincidentally, the average
annual growth of the economy.

Last week the Bureau of Labor Statistics reported
that as of 2012 only 6.6 percent of workers in the private sector
were unionized. (That’s down from 6.9 percent in 2011.) That’s
the lowest rate of unionization in almost a century.

Manufacturing is starting to return to America but it’s returning
without many jobs. The old assembly line has been replaced by
robotics and numerically-controlled machine tools.

Technologies have also replaced many formerly unionized workers
in telecommunications (remember telephone operators?) and
clerical jobs.

But wait. Other nations subject to the same forces have far
higher levels of unionization than America. 28 percent
of Canada’s workforce is unionized, as is
more than 25 percent of Britain’s, and almost 20 percent of
Germany’s.

Unions are almost extinct in America because we’ve chosen to make
them extinct.

Unlike other rich nations, our labor laws allow employers to
replace striking workers. We’ve also made it exceedingly
difficult for workers to organize, and we barely penalized
companies that violate labor laws. (A worker who’s illegally
fired for trying to organize a union may, if lucky, get the job
back along with back pay – after years of legal haggling.)

Republicans, in particular, have set out to kill off unions.
Union membership dropped 13 percent last year in Wisconsin, which
in 2011 curbed the collective bargaining rights of many public
employees. And it fell 18 percent last year in Indiana, which
last February enacted a right-to-work law (allowing employees at
unionized workplaces to get all the benefits of unionization
without paying for them). Last month Michigan enacted a similar
law.

Don’t blame globalization and technological change for why
employees at Walmart, America’s largest employer, still don’t
have a union. They’re not in global competition and their jobs
aren’t directly threatened by technology.

The average pay of a Walmart worker is $8.81 an hour. A third of
Walmart’s employees work less than 28 hours per week and don’t
qualify for benefits.

Walmart is a microcosm of the American economy. It has brazenly
fought off unions. But it could easily afford to pay its workers
more. It earned $16 billion last year. Much of that sum went to
Walmart’s shareholders, including the family of its founder, Sam
Walton.

The wealth of the Walton family now exceeds the wealth of the
bottom 40 percent of American families combined, according to
an analysis by the Economic Policy
Institute.

But how can Walmart expect to continue to show fat profits when
most of its customers are on a downward economic escalator?

Walmart should be unionized. So should McDonalds. So should every
major big-box retailer and fast-food outlet in the nation. So
should every hospital in America.

That way, more Americans would have enough money in their pockets
to get the economy moving. And everyone – even the very rich –
would benefit.

As Obama said, America cannot succeed when a shrinking few
do very well and a growing many barely make it.